A1. First-time adoption of Malaysian Financial Reporting Standards (MFRS)

Transcription

1 KFC HOLDINGS (MALAYSIA) BHD A. NOTES TO THE INTERIM FINANCIAL REPORT A1. First-time adoption of Malaysian Financial Reporting Standards (MFRS) This interim financial report is unaudited and has been prepared in accordance with the applicable disclosure provisions of the Listing Requirements of the Bursa Malaysia Securities Berhad, including compliance with MFRS 134: Interim Financial Reporting, issued by the International Accounting Standards Board (IASB). For the periods up to and including the year ended 31 December 2011, the Group prepared its financial statements in accordance with Financial Reporting Standards (FRSs). This interim financial report is the Group s first MFRS compliant interim financial report and hence MFRS 1: First-Time Adoption of Malaysian Financial Reporting Standards (MFRS 1) has been applied. The date of transition to the MFRS framework is 1 January At that transition date, the Group reviewed its accounting policies and considered the transitional opportunities under MFRS 1. The impact of the transition from FRS to MFRS is described in Note A2(a) below. A2. Significant Accounting Policies a) Application of MFRS 1 (65787-T) The audited financial statements of the Group for the year ended 31 December 2011 were prepared in accordance with FRS. Upon transition to MFRS, the significant accounting policies adopted in preparing this interim financial report are consistent with those of the audited financial statements for the year ended 31 December 2011 except as below: i) Revaluation of property, plant and equipment and investment properties as deemed cost On transition from FRS to MFRS, the Group elected to use the latest revaluation of property, plant and equipment and investment properties before the date of transition to MFRS framework as deemed cost at the date of revaluation. Accordingly, at the date of transition to MFRS, the revaluation reserve of RM104,290,000 (31 March 2011: RM104,290,000; 31 December 2011: RM104,222,000) were reclassified to retained earnings. ii) Foreign currency translation reserve Under FRS, the Group recognised translation differences on foreign operations as a separate component of equity. Cumulative foreign currency translation differences for all foreign operations are deemed to be nil as at the date of transition to MFRS. Accordingly, at the date of transition to MFRS, the cumulative foreign currency translation differences of RM1,125,000 (31 March 2011: RM1,125,000; 31 December 2011: RM1,125,000) were reclassified to retained earnings. 5

2 The reconciliations of equity for comparative periods and of equity at the date of transition reported under FRS to those reported for those periods and at the date of transition under MFRS are provided below: Reconciliation of equity as at 1 January 2011 FRS as at MFRS as at Reclassifications Equity Asset revaluation reserve 104,290 (104,290) - Foreign currency translation reserve 1,125 (1,125) - Retained earnings 482, , ,641 Reconciliation of equity as at 31 March 2011 FRS as at MFRS as at Reclassifications Equity Asset revaluation reserve 104,290 (104,290) - Foreign currency translation reserve 1,024 (1,125) (101) Retained earnings 485, , ,043 Reconciliation of equity as at 31 December 2011 FRS as at MFRS as at Reclassifications Equity Asset revaluation reserve 104,222 (104,222) - Foreign currency translation reserve (1,404) (1,125) (2,529) Retained earnings 576, , ,367 6

3 b) MFRSs, Amendments to MFRSs and IC Interpretation issued but not yet effective At the date of authorisation of these interim financial statements, the following MFRSs, Amendments to MFRSs and IC Interpretation were issued but not yet effective and have not been applied by the Group: Effective for annual periods MFRSs, Amendments to MFRSs and IC Interpretation Beginning on or after MFRS 9 Financial Instruments (IFRS 9) 1 January 2015 MFRS 10 Consolidated Financial Statements 1 January 2013 MFRS 11 Joint Arrangements 1 January 2013 MFRS 12 Disclosure of interests in Other 1 January 2013 Entities MFRS 13 Fair Value Measurement 1 January 2013 MFRS 119 Employee Benefits 1 January 2013 MFRS 127 Separate Financial Statements 1 January 2013 MFRS 128 Investments in Associates and Joint Ventures 1 January 2013 Amendments to MFRS 7 Disclosures Offsetting Financial 1 January 2013 Assets and Financial Liabilities Amendments to MFRS 101 Presentation of Items of Other 1 July 2012 Comprehensive Income Amendments to MFRS 132 Offsetting Financial Assets and Financial 1 January 2014 Liabilities IC Interpretation 20 Stripping Costs in the Production Phase 1 January 2013 of a Surface Mine A3. Status on Qualification of Audited Financial Statements The audit report of the Group s preceding year financial statement was not qualified. A4. Seasonality or Cyclicality of Operations The Group s performance is generally affected by seasonal factors such as school holidays and festive seasons. A5. Unusual Items affecting Assets, Liabilities, Equity, Net Income or Cash flows There were no significant items which unusually affect assets, liabilities, equity, net income or cash flows during the quarter under review. A6. Change in Accounting Estimates There were no changes in estimates of amount reported in prior interim period or financial year that have a material effect in the current financial quarter. A7. Debt and Equity Securities There were no cancellation, resale and repayment of debt and equity securities for the financial quarter other than the following :- (a) The paid-up share capital of the Company was increased from 793,266,104 ordinary shares of RM 0.50 each or RM 396,633,052 as at 31 December 2011 to 793,267,104 ordinary shares of RM 0.50 each or RM 396,633,552 as a result of the issuance of 1,000 new ordinary shares upon conversion of 1,000 warrants at the exercise price of RM 3.00 per share. 7

4 (b) The number of warrants outstanding as at 31 March 2012 was 31,555,573. Each warrant entitles the holder the right to subscribe for a new ordinary share of RM 0.50 each in the Company at an exercise price of RM 3.00 per share. The warrants will expire on 14 September (c) During the current quarter, the Company did not buy back any shares from the open market. Total shares bought back as at 31 March 2012 amounted to 2,078,000 shares totaling RM7,933,667 at an average price of RM 3.82 per share. All the bought back shares are being retained as treasury shares. A8. Dividend Paid There was no dividend paid during the quarter. A9. Operating Segments Current Quarter Current Quarter 1 Jan 31 Mar Jan 31 Mar 2011 Operating Operating RM million Revenue Profit/(loss) Revenue Profit/(loss) Malaysia KFC restaurants Integrated Poultry (4.9) Education 1.7 (2.6) 0.3 (1.0) Ancillary 21.8 (2.1) Foreign KFC Singapore KFC Brunei KFC India 7.0 (4.2) 4.2 (2.0) (1.2) Consolidated Total A10. Material event subsequent to the end of the interim period There were no material events subsequent to the end of the current quarter. A11. Changes in the Composition of the Group 1. The Company had on 12 March 2012 announced that its subsidiary company, Ayamas Food Corporation Sdn Bhd ( Ayamas ) bought back the shares in the following Intrapreneur Companies upon the termination of the intrapreneur arrangement between Ayamas and the Intrapreneurs: - (i) (ii) (iii) (iv) (v) (vi) Ayamas Farms & Hatchery Sdn Bhd Semangat Juara Sdn Bhd Ayamas Feedmill Sdn Bhd Southern Poultry Farming Sdn Bhd Synergy Poultry Farming Sdn Bhd Ventures Poultry Farm Sdn Bhd 8

5 2. The Company had on 10 April 2012 announced that its subsidiary company, Roaster s Chicken Sdn Bhd bought back the shares in the following Intrapreneur Companies upon the resignation of the Intrapreneurs: - (i) (ii) (iii) (iv) (v) (vi) (vii) Rasamas Butterworth Sdn Bhd Rasamas Subang Sdn Bhd Rasamas Wangsa Maju Sdn Bhd Rasamas Bukit Tinggi Sdn Bhd Rasamas Kota Bharu Sdn Bhd Rasamas Melaka Sdn Bhd Rasamas Nilai Sdn Bhd These Intrapreneur Companies were established to nurture business skills amongst the Group s employees as a strategy to grow the business and the employee intrapreneurs were previously offered shareholding in these Intrapreneur Companies. A12. Changes in Contingent Liabilities and Contingent Assets Since the last Balance Sheet date, there were no material changes in contingent liabilities and contingent assets. A13. Capital Commitment Capital expenditure : Property, plant and equipment - authorised but not contracted for 262,465 - contracted but not provided for 30, ,954 A14. Impairment of Assets There were no significant impairment losses recognised by the Company and the Group during the quarter. A15. Related Party Disclosures Significant transactions between KFC Holdings (Malaysia) Bhd group and its related companies are as follows: Current Quarter 1 Jan 31 Mar 2012 Ultimate holding corporation - Rendering of services 13 Related companies - Sale of goods 24,289 - Purchase of goods 1,907 - Rendering of services 1,383 - Allocation of expenses 1,544 - Management fees income Forwarding services payable 19 - Rental income Rental payable Commission income 173 Related parties - Rendering of services Purchase of goods 132 9

6 B. ADDITIONAL INFORMATION REQUIRED BY THE BURSA MALAYSIA LISTING REQUIREMENTS B1. Detailed analysis of the Performance of all operating segments of the Group Q vs Q The Group achieved revenue of RM mil for the current quarter, representing a growth of 11.6% over prior year corresponding period of RM mil. The Group achieved the sales growth amid a challenging economic environment which also saw intense competition in the market place. Profit before tax declined by 9.9% to RM 47.5 mil in the current quarter as against previous year s corresponding period of RM 52.7 mil. The lower profit was mainly attributed to losses in the integrated poultry segment, education segment and KFC India operations. The integrated poultry segment was affected by higher operating costs, higher commodity costs for feed production and higher cost of open market chicken purchases to meet the increasing demand of KFC Malaysia and these costs have been absorbed by the Group. KFC India and KFCH International College continued to incur loss as they have yet to achieve the critical number of restaurants and student population to operate profitably. Below is a detailed analysis of the results during the current quarter against the corresponding period last year by each business segment: (a) KFC Restaurants Segment Total revenue for the restaurants segment was RM mil which represents an increase of 9.6% over prior year. Generally, sales growth was achieved through the following winning strategies: i. network expansion of new restaurant. ii. refurbishment and remodeling of existing restaurants to entice customer visits. iii. introduction of innovative new products that is supported by effective execution of marketing promotions to encourage new customer trials and repeat visits. iv. launching of thematic campaigns and marketing programs for brand building and positioning. KFC Malaysia Revenue increased by 8.6% to RM mil (2011: RM mil) and profit before tax increased by 15.2% to RM 58.3 mil (2011: RM 50.6 mil) in tandem with the higher sales and improved margins. There were 21 new restaurants added during the last 12 months which increased the store count to 540 restaurants as at end March New products and promotions that were launched during the period were CNY Celebration Bucket Combo, Bargain Bucket Combos, Balik Makan Campaign and Chewy Cheese. KFC Singapore Revenue improved by 10.8% to RM mil (2011: RM 92.7 mil). Profit before tax increased by 8.3% to RM 2.6 mil (2011: RM 2.4 mil) due to higher sales and improved margins. There were 2 new restaurants added during the last 12 months which increased the store footprint to 81 outlets as at end March New products and promotions that were launched during the period were Ultimate Fish Ole Box, Fortune Feast (Chinese New Year), Snackers Fish Donut and 35th Anniversary Thematic. 10

7 KFC Brunei Revenue increased by 22.9% to RM 5.9 mil (2011: RM 4.8 mil) and profit before tax remained at RM 0.4 mil (2011: RM 0.4 mil). There were 3 new restaurants added during the last 12 months which increased the store count to 12 outlets as at end March KFC Brunei launched similar promotions that were carried out in KFC Malaysia. KFC India Revenue increased by 66.7% to RM 7.0 mil (2011: RM 4.2 mil) in tandem with the higher number of restaurants. Store count increased by 8 outlets during the last 12 months to 16 restaurants at the end of March KFC India posted loss of RM 4.2 mil (2011: RM 2.0 mil loss) as it has yet to achieve critical mass of operations. (b) Integrated Poultry Segment The Integrated Poultry operations comprise the feedmill, breeder farms and hatchery, broiler farms, processing plants, Kedai Ayamas and Rasamas operations. The processing plants supply to KFC restaurants and external customers. Revenue from external sales increased by 21.1% to RM mil (2011: RM mil). This segment reported loss of RM 4.9 mil (2011: RM 1.5 mil profit) due to higher operating costs such as delivery costs, energy costs, coldroom storage costs, etc. The division was also affected by higher commodity costs for feed production besides incurring higher cost for open market chicken purchases to meet the increasing demand by KFC Malaysia. The chicken purchases were transacted in 4Q 2011 at higher price due to the outbreak of Newcastle broiler disease which affected the broiler supply in Malaysia then. (c) Education Segment KFCH International College achieved higher revenue of RM 1.7 mil (2011: RM 0.3 mil) but reported loss of RM 2.6 mil (2011: RM 1.0 mil loss). The college operates in two campuses and have incurred higher costs in promoting student intake. The college participated in education fairs and career talks, collaborated with government agencies and entered into twinning arrangements with other established learning institutions. The college has more than 800 students pursuing its diploma programs besides running short courses and certificate programs. (d) Ancillary Segment The Group s Ancillary segment principally comprises the bakery and commissary, sauce manufacturing, contract tea packing and warehousing operations. Revenue to external customers decreased by 7.2% to RM 21.8 mil (2011: RM 23.5 mil). This division reported loss of RM 2.1 mil (2011: RM 0.8 mil profit) mainly due to higher cost incurred by its warehousing operations after it has moved into a new facility with substantially bigger storage capacity. The Group s contract tea packing activities was also affected by a sharp reduction in sales orders. Included in this segment were corporate expenses incurred by the Group. Higher legal and professional charges and borrowing costs were incurred during the current period. 11

8 B2. Material Changes in the Quarterly Results Q vs Q The Group s revenue declined by 6.3% to RM mil in the current quarter as against RM mil in the immediate preceding quarter. Profit before tax decreased by 22.1% to RM 47.5 mil in the current quarter from RM 61.0 mil in the immediate preceding quarter. The drop in sales were attributed to the higher turnover during the year end school holidays in the preceding quarter and also lesser days in the current quarter. The lower profit was attributed to the lower sales as well as lower profit margin in the current quarter. B3. Prospects for the year The global economy is still fragile in view of the debt crisis in Europe that is affecting both the developed and emerging economies. Although there are nascent signs of recovery in the US economy, recent reports of lower than expected jobs creation appears to have dampened earlier optimism. On the homefront, the Malaysian economy continued to expand albeit at a slower rate against the backdrop of the weak global economy. The country s GDP grew 5.1% year on year in 2011 and target to grow between 4% and 5%in 2012 (Source:BNM). The country s economy is continued to be driven by domestic consumption. Public spending is expected to be sustained under the Government s 10MP and implementation of the ETP projects and incentives in the 2012 Budget are expected to spur private spending. The economies of the other markets where the Group operates such as Singapore, Brunei and India still appear resilient with moderate GDP growth. The food sector continues to be resilient but the Group faces significant challenges from intense competition that are driven with aggressive value campaigns in both the domestic and foreign markets. This is further exacerbated by cost pressures from an unrelenting inflationary condition. To stay ahead, the Group strive to generate earnings growth by continuing with its successful strategies, i.e. to drive topline aggressively with new winning products, offering value promotions to consumers and also investing in thematic advertising on its brands to reinforce its superior product quality and dining experience besides executing operational excellence at all times. The Group plans to develop 15 new KFC restaurants in Malaysia during the year, majority are drive-thru facilities besides refurbishing existing ones. In Singapore, the Group plans to open 3 new KFC restaurants whilst Brunei is planning to open 3 KFC restaurants which include 2 drivethru during the year. In India, the Group sees long term potential and is working very closely with the franchisor to rapidly develop new stores in the market as it set its sight to operate 29 restaurants by the end of the year. The commodity prices for feed production are receding which augurs well for the integrated poultry segment. New capacities in the broiler farming operations that were planned towards greater broiler self-sufficiency are in various stages of development. It is expected to increase inhouse broilers production progressively during the year which will reduce the open market purchase of chicken and mitigate the risk of fluctuating broiler prices. The sauce manufacturing business under the Life brand has gained considerable traction in a highly competitive industry under the Group s marketing arm, i.e. KFC Marketing Sdn Bhd. Aside from the higher production cost, the brand and its products are now well received by consumers which offer an exciting year for the ancillary segment. 12

9 With regards to our education sector, the college will strive to fast-track into the highly competitive education business which forms an important source of human capital for the Group s operations. It will continue to aggressively promote student intake through various channels so as to achieve profitability As always, the Group is continuously seeking better efficiencies by leveraging on volume purchase and improving productivity at all its business segments. Barring any unforeseen circumstances, the Board is confident of maintaining the growth for the year. B4. Profit Forecast/Profit Guarantee The Company is not subject to any profit forecast or profit guarantee requirement. B5. Taxation Current Quarter Income tax expense for the period :- Malaysian income tax 12,416 Foreign tax ,890 Deferred tax 1,410 14,300 The effective tax rate for the Group for the current period is higher than the statutory tax rate in view of the disallowance of certain expenses for tax purposes. B6. Status of Uncompleted Corporate Announcements 1. The Company had on 11 July 2011 announced the purchase of part of the freehold vacant commercial land measuring approximately acres or 134,818 sq ft on part of Lot PTD (previously under part of Lot 84134) located within Bandar Dato Onn ( BDO ) ( Parcel 2 ) at a total consideration of RM 9,167, or RM per sq. ft. from Johor Land Berhad. The Company is in the midst of completing the Condition Precedents as defined in the Sale and Purchase Agreement with the Vendor. 2. Reference is made to the announcement made by the Company in relation to the letter of offer by Massive Equity Sdn Bhd ( MESB ) dated 14 December 2011, wherein MESB stated its intention to acquire the entire business and undertaking of the Company, including all assets and liabilities of the Company, at an aggregate cash consideration equivalent to:- (a) (b) RM4.00 per ordinary share of RM0.50 each held in the Company ( KFC Share ) multiplied by the total outstanding KFC Shares (less treasury shares, if any) at a date to be determined later; and RM1.00 per warrant of the Company ( KFC Warrant ) multiplied by the total outstanding number of KFC Warrants in issue at a date to be determined later. (hereinafter referred to as the KFC Offer ) MESB had also on even date made an offer to acquire substantially all the business and undertaking of QSR Brands Bhd ( QSR ), including substantially all of the assets and liabilities of QSR ( QSR Offer ). The KFC Offer and the QSR Offer are inter-conditional. 13

10 The Company had on 21 December 2011 announced that the Board (save for the Interested Directors under the KFC Offer) has considered, inter-alia, the views of the Main Adviser and the Independent Adviser and all other relevant aspects of the KFC Offer. Pursuant thereto, the Independent Directors of the Company have agreed to accept the KFC Offer subject to further negotiations and mutual agreement on terms and conditions to be incorporated into the definitive sale and purchase agreement ( SPA ). The Company had on 23 April 2012 announced that the Company and MESB had on even date mutually agreed in writing to the following:- (a) (b) the date for execution of the SPA to be entered into between MESB and the Company shall fall on a date no later than 21 May 2012 or such other later date as the parties may mutually agree; and the date for the fulfillment or otherwise waiver of conditions precedent in the KFC Offer shall refer to such mutually agreed cut-off date as set out in the SPA. The Company had on 18 May 2012 entered into Business Sale Agreement ( BSA ) and Property Sale Agreements (collectively Agreements ) with Triple Platform Sdn Bhd ( TPSB ), a whollyowned subsidiary of MESB in relation to the proposed disposal of the entire business and undertaking, including all the assets and liabilities of the Company to TPSB ( Proposed Disposal ). TPSB had entered into the BSA in place of MESB in consideration of MESB agreeing to waive all its rights to the KFC Offer and the Company agreeing to discharge MESB of any liabilities under the KFC offer. Upon completion of the Proposed Disposal, the Company will undertake to return the cash proceeds arising from the Proposed Disposal to shareholders and warrantholders via capital repayment by way of capital reduction exercise pursuant to Section 64 of the Companies Act 1965 and warrant scheme by way of special resolution. The completion of the Proposed Disposal is subject to the fulfilment of the conditions precedent as particularly described in the BSA by the stop date of the BSA which is the date falling 4 months from the date of the BSA or at such other date as may be mutually agreed in writing by the parties to the Agreements. The parties are in the midst of completing the conditions precedent as stipulated in the BSA. 14

11 B7. Borrowings and Debt Securities As at 31 Mar 2012 As at 31 Dec 2011 Current Secured - Term Loan (denominated in RM) Unsecured - Term Loans (denominated in RM) 22,125 20,675 - Term Loan (denominated in USD) 5,163 2,701 - Term Loans (denominated in INR) Bankers Acceptance (denominated in RM) 7,600 34,000 - Revolving Credit (denominated in RM) 18,940 8,000 54,488 65,745 Non-current Secured - Term Loans (denominated in RM) 48,916 46,708 Unsecured - Term Loans (denominated in RM) 119, ,018 - Term Loan (denominated in USD) 25,207 29,078 - Term Loans (denominated in INR) 11,349 11, , ,504 B8. Material Litigation, Claims and Arbitration There were no material litigations, claims and arbitration outstanding. B9. Dividend Proposed There was no dividend payment proposed during the quarter. 259, ,249 B10. Earnings Per Share CURRENT QUARTER 1 Jan 31 Mar Earnings Profit attributable to owners of the Company Weighted average number of shares 32,461 36,124 a) Basic ( 000) ( 000) Weighted average number of ordinary shares in issue 791, ,239 b) Diluted earnings per share Weighted average number of ordinary shares in issue 791, ,239 Adjustment for assumed exercised of warrants 6,696 5,941 Adjusted weighted average number of ordinary shares 797, ,180 Basic earnings per share (sen) Diluted earnings per share (sen)

12 B11. Currency Translation The exchange rates used for each unit of the foreign currencies in the Group for the current financial period are :- THIS YEAR CURRENT QUARTER PRECEEDING YEAR CORRESPONDING QUARTER MTH-END AVERAGE MTH-END AVERAGE RATE RATE RATE RATE RM RM RM RM Hong Kong (HK$) Brunei Darussalam (B$) Singapore (S$) US Dollar (USD) Indian Rupee (INR) B12. Realised and unrealised profits or losses Pursuant to Paragraph 2.06 and 2.23 of Bursa Malaysia Main Market Listing Requirements, the breakdown of retained earnings of the Group as at the reporting date, is as follows :- As at As at 31 Mar Dec 2011 The retained earnings of the Group is made up as follows :- - Realised 743, ,366 - Unrealised (59,022) (57,612) 684, ,754 Add : Consolidation adjustments 29,521 45,613 Total retained earnings 713, ,367 By Order of the Board KFC HOLDINGS (MALAYSIA) BHD.. IDHAM JIHADI BIN ABU BAKAR (MAICSA ) HENG AI LENG (MAICSA ) (COMPANY SECRETARIES) Date: 22 May